Property for Service Tax Basis
Lesson:
How do we figure out the tax basis when there is no money involved?
This often happens when services are exchanged for property.
The general rule is that you should use the fair market value of the property as the basis, unless a dollar value for the services is established and agreed upon prior to the service being rendered.
You're a tax preparer, trying to calculate the basis of a physical item received by your client in exchange for a service:
You've been briefed with the following facts:
- The parties only agreed on the value of the services after the exchange took place.
- The property provided is valued at $174.
- The service provided is valued at $218.
What is the basis for the property?
Answer:
- The property's basis is $174.
Explanation:
-
Unless the value of the service's value is agreed upon prior to exchange, the property's basis is its fair market value.